The Advisors' Blog

– Lynn Jokela

A recent Pearl Meyer blog discusses the importance of temporary CEO succession plans as we confront the Covid-19 pandemic.  Among other things, the blog lists considerations for the compensation committee about the form and structure of temporary CEO compensation – noting there is no prevailing practice. One practice pointer is to keep the temporary CEO’s compensation plan simple so it will be easier to communicate and disclose.  Here’s an excerpt:

– Salary: It is common practice to increase the interim executive’s salary while in the CEO role. Raising the salary to the 25^th percentile of the CEO pay benchmark for the period the executive will be serving as CEO may be a sound approach. The salary can revert to the prior level once the executive is back in his or her original role.

– Annual Incentive:You can employ the same concept here. Raise the target award based on the 25^th percentile CEO benchmark levels. The more difficult actions are whether to modify existing goals or add new goals, and the committee should discuss how to incorporate discretion in assessing the temporary CEO’s performance.

– Long-term Incentives: Depending on the length of time the executive fills the temporary role, the committee may not need to make any adjustments to the “regular” long-term incentive grant. But, depending on the circumstances, the committee may want to consider a one-time grant either at the time the company appoints the temporary CEO, or after the original CEO returns, to acknowledge the additional service provided by the executive filling the temporary role.